* 10-year note yields lowest since Oct, 30-year yields
lowest since June
* Data showed mixed signs of economic strength
* Speculative short covering seen sending yields lower
By Karen Brettell
NEW YORK, May 15 U.S. Treasuries prices gained
on Thursday and benchmark 10-year note yields fell to six-month
lows after a weak manufacturing indicator overcame other data
releases that showed solid U.S. economic strength.
The rally was also seen as due to a record number of short
positions, where investors bet on yield increases, as these
investors have been forced to cover their bearish bets each time
bonds rally.
U.S. industrial output fell at its fastest rate in more than
1-1/2 years in April as factory production slumped, tempering
hopes for a big jump in economic growth after a winter slowdown.
Data earlier on Thursday was more bullish on the economy,
showing that fewer Americans filed for unemployment benefits in
the last week, consumer prices posted their largest increase in
10 months in April and a gauge of manufacturing in New York
state accelerated to its fastest pace in nearly four years.
Treasuries have rallied even as many investors see yields as
likely to rise as the economy gains momentum, with many
speculating that the Federal Reserve is likely to begin raising
interest rates next year.
Some of the gains are due to the expectation that central
banks globally will continue to provide loose monetary
conditions, with the European Central Bank expected to cut
interest rates next month.
But a record number of speculators betting on bond yield
increases is also increasingly seen as behind the bond rally,
throwing the market off balance and sending yields lower
regardless of what the U.S. economic data shows.
"The short positioning in the street has been really quite
severe," said Aaron Kohli, an interest rate strategist at BNP
Paribas in New York. "Too many people got short early and now
there is no one left to follow them into the trade and they are
covering themselves."
Data last Friday showed that speculators' net bearish bets
in Eurodollar futures rose to a record high in the previous week
following an unexpectedly strong reading on U.S. payrolls in
April, according to Commodity Futures Trading Commission.
Bearish bets on five-year and ten-year Treasuries futures
have also increased in recent weeks.
Benchmark 10-year notes were last up 10/32 in
price to yield 2.510 percent, after falling as low as 2.502
percent immediately after the industrial production data, the
lowest since Oct. 30.
Thirty-year bonds were last up 20/32 in price to
yield 3.34 percent, after earlier falling as low as 3.32
percent, the lowest since June.
(Editing by W Simon)